At Bybit, there are traders who operate using a delta-neutral strategy. The delta-neutral strategy using virtual currency futures has the characteristic that the risk is extremely low, and it is suitable for those who want to trade stably because there is little risk of big loss.
What is Delta Neutral?
Delta neutral means that the physical stock is first held by the trader. This is a method of short settlement of the same amount of inverse perpetual futures contracts. Earning money with Delta Neutral is related to the “funding rate”. The strategy is to make a settlement by aiming for the timing when the short position increases. However, be aware that there may be negative consequences. This method is used not only for virtual currencies but also for FX and stocks, but if the timing is wrong, it may fail if operated with automatic trading or BOT.
What is perpetual contract
A perpetual futures contract is a contract that allows you to close your position at any time. This contract is highly recommended for those who are good at short-term trading.
What is Funding Rate
Bybit charges a fee called Funding Rate once every 8 hours. The funding rate occurs at 1:00 am, 9:00 am, and even 5:00 pm Japan time, and if you hold a position during this time, you will be charged a fee. As a past trend in the cryptocurrency market, the perpetual futures price has remained higher than the spot price, making it easier for short position holders to receive interest.
Why delta neutral works
The funding rate is often positive in most cases, so if you receive the funding rate throughout the year, an annual interest rate of 30% or more is possible. There are times when it is negative, but if you look at it in total, it tends to be positive. That’s why most of the cases end in positives.
When to make money with Delta Neutral
Trading currencies must be in an uptrend in order to earn delta-neutral. Many people hold long positions during an upward trend, so if you hold a short position, you can receive interest income from the funding rate without risk. And this is the most important factor, the funding rate increases as the ratio of positions increases. The interest you will receive will be higher.
Notes on Delta Neutral
Delta neutral has the following advantages and disadvantages, so let’s consider them comprehensively and decide whether to go for it or not.
profit with less risk
In the case of delta neutral, you hold a short position at the same time, so you tend not to be exposed to the risk of price fluctuations. Furthermore, it is possible to challenge even with a small investment, so even beginners can make a profit by trading even with a small amount, so it is recommended even for beginners.
No trading technique required
General trading requires techniques in trading. Since Delta Neutral only holds positions, it is possible to try it without any experience or skills in trading. Beginners just starting out can have a hard time winning, but if you’re delta neutral, you can potentially make a profit.
reproducible
In the case of delta neutral, the reproducibility tends to be slightly higher because the system allows you to earn profits just by holding the position. However, on the other hand, there is no guarantee that you will always make a profit. Investments are made at your own risk.
Fluctuation risk
Virtual currencies are subject to constant price fluctuations. When the virtual currency market drops significantly, there is an extremely high possibility that the funding rate will become negative. In that case, you will of course end up cutting your losses rather than increasing profits, so you need to be careful as this does not mean there is no risk.
loss cut
Due to the above, if you fall into a state of insufficient margin, there will be a risk of loss cut. Since the leverage is 1x, the possibility of running out of margin is low. However, it is a possibility and should be considered.
How to start delta neutral
Follow the steps below to get started with Delta Neutral. Bybit is a highly reputable exchange that ranks high in popularity rankings among overseas virtual currency exchanges such as Binance and MEXC. There are many coins, including Bitcoin, and a wide variety of order formats and categories. Of course, there are many campaigns and bonuses overall, so it is a very good exchange for beginners. You can trade BTC, USDT, XRP, etc.
account opening
First, open an account with Bybit. You can find out how to open an account from the article below.
spot trading
Once you have opened an account, let’s hold the actual virtual currency. For spot transactions, select “Spot Transaction” from “Spot” on the top menu.
Owned in an inverse perpetual futures contract
Take a short position in an inverse perpetual futures contract. Please make sure that the holding amount of the short position is the same amount as the actual holding amount. Click on ‘Inverse Contracts’ from ‘Derivatives’ on the top menu and have a trading instrument.
Notes on Delta Neutral
Hopefully, you will be able to receive rewards based on the funding rate three times a day. But this is just an ideal theory. Note that it may actually be negative. Delta Neutral cannot receive profits unless the funding rate is positive. When the virtual currency market drops significantly, the funding rate will be negative, so please be prepared to cut losses. If you hold on to it poorly and hold it, you may end up losing a lot of money.
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